Sunday, August 05, 2007

The night before D-day


Heading into this week, I plan on keeping my size down and waiting for the setup to come to me. I'm expecting tomorrow to be a crazy open, one in which I will likely be watching. I read an interesting article at FuturePath trading, one that talks about how, we have less blackbox activity, instead of what I thought was increased blackbox activity.

Here is a quote from the post'
If you were trading the SPs on Wednesday, you probably noticed a marked chance in behavior re the "noise level". 10 ticks up, 10 ticks right back down, 10 ticks up, ten ticks down...., also, affectionately known as "noise". You probably also noticed a huge drop in the size of the bid/ask. All markets have their own footprints and the footprint in the SPs had definately changed mid week. It is pretty hard to keep things "mum" in this industry, so it did not take more then a few hours of networking around to learn that one of the largest firms specializing in algorithmic "black box" auto systems (market making), had taken a rather large hit the prior few days, and had turned off all their auto-trading systems. Another large firm specializing in the same game, claimed "technical difficulties" and had also shut off their auto trading systems. These type of systems add liquidity to the system and generally make up about 40% of the volume in the e minis. Some of the systems work in the manner that a floor specialist would - buying on bid, and selling out on offer 2-3 ticks higher, or shorting on offer, and covering on bid 2-3 ticks lower - constantly extracting dollars out of the spread between the bid ask. (FromFuture Path Trading)

This post makes since to me. When the market is this volatile, even the fastest computers can't keep up with the craziness that us humans exhibit when trading. What does this mean though? I'm thinking a lot of automated trading systems are getting there butts kicked right now and that prop traders are making a lot more money.

With the current sentiment right now, who wants to BUY?

If the Banks and Brokers are the primary institutions that control the stock market, and they are weak and being downgraded, why would you buy? Moreover, if the banks and brokers are selling there own stock, would you buy?

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